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Inland Real Estate Corporation (NYSE:IRC)

Q1 2014 Earnings Conference Call

May 08, 2014, 02:00 PM ET

Executives

Dawn Benchelt - Director of Investor Relations

Mark Zalatoris - President and Chief Executive Officer

Brett Brown - Chief Financial Officer

Scott Carr - Chief Investment Officer

Analysts

Paul Adornato - BMO Capital Markets

Juan Sanabria - Bank of America Merrill Lynch

Grant Keeney - KeyBanc Capital Markets

Tammi Fique - Wells Fargo

Operator

Hello and welcome to the Inland Real Estate first quarter 2014 conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Dawn Benchelt, Director of Investor Relations. Please go ahead.

Dawn Benchelt

Thank you for joining us for Inland Real Estate Corporation's first quarter earnings conference call. The earnings release and supplemental financial information package have been filed with the SEC today and posted to our website, www.inlandrealestate.com. We are hosting a live webcast of today's call, which is also accessible on our website.

Before we begin, please note that today's discussion contains forward-looking statements, which are management's intentions, beliefs, and current expectations of the future. There are numerous uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a discussion of these risks factors, please refer to the documents filed by the company with the SEC, specifically our Annual Report on Form 10-K for the year ended December 31, 2013.

During the presentation, management may reference non-GAAP financial measures that we believe help investors better understand our results. Examples include funds from operations, EBITDA and same-store net operating income. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release and supplemental dated May 08, 2014.

Participating on today's call will be, Mark Zalatoris, IRC's President and Chief Executive Officer; Chief Financial Officer, Brett Brown; and Scott Carr, Chief Investment Officer.

Now, I'll turn the call over to Mark.

Mark Zalatoris

Thanks, Dawn. Good afternoon, everyone. Thanks for joining us. I'll begin today's call with a summary of results and accomplishments for the first quarter, and then review our strategic goals and objectives for 2014. Scott will discuss our portfolio performance and leasing activity for the quarter, and finally Brett will comment on our capital plan, financial performance and 2014 guidance.

First quarter was a solid start to the year for our company, with FFO growth driven by higher occupancy and sustained positive rent spreads throughout our portfolio. During the first quarter, we also continue to increase total assets under management. We partially funded that growth with proceeds from the sale of properties that no longer meet our definition of core, including those where we believe we have maximized value.

As always, we're focused on delivering consistent reliable income growth for our shareholders through expert management of a dynamic and expanding portfolio from necessity and value-based retail assets. This is our primary objective, we're proud of our team's ability to execute on our business plan.

As we move forward through 2014, we remain focused on our strategic goals, which are: one, to proactively manage our existing portfolio to continue to upgrade the quality and stability of operating cash flows; two, to further grow and improve our portfolio through the purchase of prime shopping centers that meet our acquisition criteria, while we recycle capital from sales of non-core properties for which additional upside is limited; three, to expand our portfolio, while enhancing the diversification of our tenant base and geographic footprint, particularly targeting markets in the central and southeastern regions of the country; and four, to continue to improve the leverage metrics and financial flexibility of our balance sheet with a long-term goal of achieving an investment-grade rating.

Turning to our first quarter performance, I'll begin with operations. During the quarter, we continue to see solid trends in our leased and financial occupancy rates. At March 31, our total portfolio leased occupancy was 95.2% consistent with yearend 2013 and up 110 basis points from 12 months earlier.

Financial occupancy at the end of the quarter was 93.5%, representing increases of 40 basis points over yearend 2013 and 190 basis points over one year ago. These increases demonstrate that we're seeing the benefit of strong and consistent leasing efforts over the past several quarters, which is a testament to the hard work and diligence of our entire team.

Same-store NOI from the total portfolio, including our pro rata shares of unconsolidated joint ventures increased 2.8% for the quarter. And consolidated same-store NOI increased 1.7% over the year-ago quarter.

While we don't provide guidance on a quarterly basis, the growth in consolidated same-store NOI for the first quarter was in line with our expectations, as we anticipate income growth to be weighted to the later part of the year, as new tenants commence paying rent. Scott will provide additional information and consolidated same-store NOI in his remarks. For the full year 2014, we continue to expect consolidated same-store NOI to range between 2% and 4%.

As I noted earlier, we grew operating income from our total portfolio due in part to average base rents that increased 5.9% on a blended basis over expiring rents. We believe our ongoing success of producing healthy rent spreads is primarily due to the continued demand for space in our well-located centers from retailers growing net new store counts.

In the first quarter we also continue to pursue our strategic objective to grow the portfolio. In March, we acquired Mokena Marketplace a 49,000 square foot shopping center, plus an outlet building leased to Chase Bank and five yet to be developed outparcels in Mokena, Illinois for $13.7 million.

Mokena is an affluence suburb located approximately 30 miles southwest of downtown Chicago. The surrounding population has a strong demographic profile with average household income of $110,000 and population of more than 96,000 within a five-mile radius. Mokena Marketplace includes a strong roster of retailers, including PetSmart, Party City and is shadow-anchored by JCPenney and new Meijer grocery stores scheduled to open this summer.

We continue to evaluate a substantial pool of potential acquisitions located within our core Midwest markets as well as in area we have targeted for expansion, and expect to announce additional transactions in the months ahead.

We have access to multiple sources of capital to fund our growth strategy, including our joint venture with PGGM. This venture allows us to leverage our partners' equity to grow our portfolio, which preserves our capital, mitigates risk and expands our purchasing power, while retaining the ability to ultimately consolidate the assets onto our balance sheet. To date, the value of the PGGM portfolio is over $700 million and we continue to work to complete the remaining investment allocation for the venture in 2014.

As a reminder, we can begin acquiring 20% of PGGM's interest in the joint venture portfolio per year, beginning in 2016. Our end goal is to eventually consolidate 100% of the PGGM joint venture portfolio, as we did with the NYSTRS joint venture portfolio last year.

Finally, in the first quarter we invested $43.3 million to acquire six retail properties for our joint venture with IPCC. Our investments in these properties are returned to us, as interests are sold to third-party investors. And we typically rotate that capital multiple times per year into additional property investments for the venture.

In the near-term, we earn acquisition fees on these transactions, and on a longer-term basis we earn recurring fees for managing these properties on behalf of the ultimate investor owners. We believe this venture is a capital efficient way to generate long-term fee income by leveraging our existing operating platform.

I'll now turn the call over to Scott.

Scott Carr

Thank you, Mark, and hello, everyone. Today I'll begin by providing additional detail on our operating results and leasing activity during the first quarter, then I'll give some color on what we are seeing in the overall leasing environment, followed by an update on our acquisition, disposition and redevelopment pipelines.

During the first quarter, same-store net operating income for the consolidated portfolio increased 1.7%. This was driven by higher revenue due to increases in consolidated rent spreads and an increase of 180 basis points in consolidated same-store financial occupancy over one year ago.

Just to clarify, the year-over-year change in same-store financial occupancy and same-store leased occupancy were incorrect in the release and financial supplemental package posted this morning. These have been revised and a corrected release and supplemental have been posted to our website. There were no other changes to note.

As Mark mentioned, we anticipate our consolidated same-store NOI will grow over the balance of the year, as new tenants commence paying rent. Since the fourth quarter of 2013, within the same-store portfolio, we have delivered over 174,000 square feet of space to tenants, who are scheduled to commence paying rent throughout the remainder of the year.

The space being bought back on line is a combination of the completion of some of our redevelopment projects as well as overall occupancy gains tied to leasing. Notable tenants coming on line over the course of the year, include Nordstrom Rack, two Ross stores, Shoe Carnival, Dress Barn, Christopher & Banks and Starbucks.

Certain store openings and rent commencements have been impacted by construction delays, resulting from the harsh winter weather in the Midwest. As a reminder, our same-store pool includes properties undergoing repositioning or redevelopment, and the downtime associated with this type of activity is reflected in the reporting of our same-store NOI.

That said, we continue to expect income from new leases of repositioned space and new GLA to come on line during the year and the consolidated same-store NOI will range between 2% and 4% for 2014.

Turning to occupancy for the consolidated portfolio. Leased occupancy was 94.8%, representing increases of 20 basis points and 280 basis points over last quarter and one year ago, respectively. Financial occupancy was 92.6% representing increases of 60 basis points and 350 basis points over the last quarter and one year ago, respectively.

Non-anchor leased occupancy for the total portfolio was 88.2% at quarter end compared to 88.6% last quarter and 88.5% one year ago. I'd like to note that non-anchor leased occupancy has been impacted by the sale of unanchored strip centers with high leased occupancy such as River Square and Golf Road Plaza.

Anchor leased occupancy was 98.1% at quarter end compared to 98% last quarter and 96.3% one year ago. We are pleased with the progress we made in our anchor leasing and expect this will continue to drive momentum in our non-anchor leasing in the coming quarters.

Moving to our leasing results, I am pleased to report another solid quarter of leasing activity. During the first quarter we executed 79 leases, aggregating nearly 366,000 square feet within our total portfolio comprised of 55 renewal leases, totaling approximately 308,000 square feet with average base rents that increased 4.8% over the expiring rents; 10 new leases, totaling approximately 20,000 square feet with average base rents increased 19.8%; and 14 non-comparable leases for almost 38,000 square feet.

We continue to maintain a healthy mix of national and local retailers and 60% of the new and non-comparable leases were signed with national and regional retailers. This quarter marks 13 consecutive quarters of positive spreads on new leases and continued positive rent spread on renewals worth total portfolio. This is reflective of our high-quality and well-located assets as well as limited new supply growth, which has increased our pricing power.

Renewal leases for the quarter, included six anchor leases, totaling 177,000 square feet with tenants Old Navy, DSW, Petco, Roundy's, Tiger Direct and Gander Mountain Sports. The extended commitment of these tenants is evidence of their performance at our centers and the consumer traffic they generate is a catalyst for additional leasing activity.

I would like to give a bit more color on a few of the leases that drove the 19.8% increase in total portfolio new lease rent spreads for the quarter. At Schaumburg Plaza, in Schaumburg, Illinois, we are demolishing the existing building. In this quarter we'll commence construction on two-tenant building, already pre-leased to Starbucks and Which Wich.

This redevelopment project resulted in a combined average rent spread of 42% over the former average rent and is expected to provide a return on cost of 11.7%. This project is an example of our ability to increase the gross leaseable area and value of our properties through redevelopment.

Additionally, during the quarter we signed a new lease with Sally Beauty at Mallard Crossing in Elk Grove Village, Illinois, at an average base rent that is more than 25% higher than the rent paid by the former tenant. This new lease originated in a portfolio overview with Sally Beauty and included the negotiation of three renewal leases executed this quarter for a positive combined average rent spread of 9%.

Regarding the overall leasing environment, we are encouraged by the continued demand from 5,000 to 10,000 square foot apparel retailers. For example, during the quarter, we signed a new lease with Christopher & Banks at Orchard Crossing in Fort Wayne, Indiana, and we also worked with rue21 to expand two existing locations to accommodate the addition of the retailer's new rue Guy, men's clothing concept at both Orchard Crossing in Fort Wayne and Bradley Commons in Bourbonnais, Illinois.

We also continue to see demand from junior box retailers looking to add net new stores in our markets. We are actively working through a strong pipeline of opportunities with junior anchors for space at our centers and expect to report solid leasing activity with these retailers in coming quarters.

With regard to the Grocery segment, Roundy's recently announce that they will exit the Minneapolis St. Paul market through the disposition of their Rainbow stores. Our Twin Cities portfolio includes four Rainbow stores, two of which will be acquired by SuperValu and operated at Cub Food Stores. The remaining two locations have not yet been sold and will continue to be marketed.

We are optimistic about the retenanting prospect for both locations, as they are allocated within power centers in established retail trade areas. These locations benefit from existing co-tenants such as Target, Home Goods, Sport Authority, Michael's, Big Lots, Petco, Becker Furniture and Home Depot. The depth of these trade areas should drive demand for potential retenanting to both grocery and non-grocery retailers.

As this is not a bankruptcy situation, we anticipate an orderly transition with no interruption of rent from Roundy's. Roundy's remains viable on the two remaining leases through the third quarter of 2018, which provides us the ability to maintain current income, as we pursue replacement tenant.

Replacing Rainbow is an opportunity to build upon the existing strength of these centers and improve the rents and tenant mix for the long-term. Similar to our experience with the Dominick's transition in Chicago, the potential to upgrade with stronger anchor tenants has a positive impact on our shopping centers.

The Rainbow disposition is expected to close in third quarter of this year, with the remaining Rainbow stores to close within 90 days of that timeframe. We will provide updates on this transition as they are available.

Now, turning to transactions. We continue to improve portfolio quality by recycling capital from the sale of non-core or limited growth assets into new properties with high-quality national tenants and attractive growth prospects.

During the quarter, the company sold three assets for a total price of approximately $23.1 million and recorded a gain on sale of $12.9 million. These dispositions included a single-user property formerly leased to Dominick's in Countryside, Illinois for $3 million; the Golf Road Plaza, an unanchored strip centre in Niles, Illinois for $3.3 million; and the River Square unanchored neighborhood center in Naperville, Illinois for $16.8 million.

In addition, after the close of the quarter, we sold a single-user property leased to Disney in Celebration, Florida for $25.7 million, a price above its current carrying value. Disney exercised their right to purchase the property as provided in their lease agreement.

On the acquisition front, as Mark mentioned, in the first quarter we acquired Mokena Marketplace for $13.7 million. This property is an attractive addition to our consolidated portfolio due to its strong position within the trade area, the value-add potential through the lease-up and repositioning of in-line retail space and the sale and development of adjacent outparcels. We own other assets in the surrounding trade areas and have the local market insights to take advantage of this opportunity to create additional value at this shopping center.

The current acquisition environment remains very competitive for stabilized retail properties in our target markets that meet our return requirements. Within this environment, we are pursuing a balanced approach to growing our portfolio, targeting well-located properties with in-demand retailers and value-add potential like Mokena Marketplace as well as pursuing highly occupied stabilized properties and ground-up developments in both primary and secondary markets.

Our development initiatives enhance our acquisition strategy, providing access to a long-term pipeline of new assets at better than market pricing. We believe this balanced strategy of acquisition and development will enhance the overall quality and diversification metrics of our portfolio, while meeting our long-term investment objectives. We are currently reviewing multiple assets for our consolidated and PGGM joint venture portfolios.

In closing, our team is focused and continues to leverage our strong tenant relationships and presence in our core markets to drive leasing volumes and increased rents, as we also work to further improve our portfolio with thoughtful acquisitions, development and redevelopment projects all with the clear objective of growing shareholder value.

And now, I will turn it over to Brett for his comments.

Brett Brown

Thank you, Scott, and hello, everyone. On today's call, I will provide an update on our balance sheet, review the financial results for the quarter and finish with our guidance for 2014.

We are very pleased with our results for the quarter and believe our financial position has remained stronger than ever. Our balance sheet objectives for 2014 are consistent with our goal to achieve an investment-grade profile. In the months ahead, we will continue to focus on enhancing our financial flexibility and liquidity, which includes maintaining access to multiples sources of capital at the best possible prices. We are also working to lower our overall leverage including reducing secured debt as a percentage of our total debt.

To that end, during the quarter we paid off three mortgage loans totaling approximately $26.5 million, utilizing our line of credit and cash on hand. For the remainder of 2014, excluding the two loans on Algonquin Commons, our debt maturities include approximately $22.6 million of mortgage loans and $29.2 million of unsecured convertible notes that can be called by or put to us in November.

As we have stated in the past, we intent to pay off secured debt upon maturity or earlier, when we we're able to do so with minimal or no prepayment penalties. As a result of our efforts, our financial ratios indicate that we are making steady progress on our goals.

For example, unsecured debt to total debt including our pro rata share of unconsolidated joint venture debt was 39.1% for the quarter, an improvement of 540 basis points over the prior year. Debt to total market capitalization was 47.7% at quarter end, an improvement of 160 basis points over one year ago and total debt to gross assets including our pro rata share of unconsolidated joint ventures was 50% for the quarter, an improvement of 90 basis points over the first quarter of 2013.

In addition, recurring EBITDA to interest expense coverage ratio was 3.3x for the quarter versus 3.0x for the first quarter of 2013. Our fixed charge coverage ratio pro rata consolidation improved to 2.7x compared to 2.4x for the year ago quarter. And finally, net debt to EBITDA including our share of unconsolidated joint ventures was 7.1x for the quarter, an improvement from 7.3x for the same period in 2013.

Turning to balance sheet capacity. At quarter-end, we had $25 million available under our existing line of credit facility and after the close of the quarter we paid down the balance on the line with proceeds from financings at properties acquired or for the IPCC joint venture and property sales. As of today, we have $65 million available on the line and an additional $100 million available under an accordion feature leaving us with $165 million of capacity to handle our upcoming debt maturities.

We continue to maintain multiple sources of capital aside from the line, including proceeds from asset recycling, institutional partner capital, unsecured borrowings and opportunistic use of our ATM equity program to fund our acquisition and development pipeline. Regarding our operational results, on a per share basis, we reported FFO and recurring FFO of $0.23 for the first quarter.

FFO per share increased 9.5% and recurring FFO, which excludes lease termination income and non-cash items net of taxes increased 4.5% compared to the first quarter of 2013. The increases are due to the higher net operating income from the consolidated and unconsolidated joint venture portfolio, partially offset by higher mortgage interest expense from the consolidation last year of assets formerly held in the NYSTRS joint venture.

For the quarter, we reported total revenue of $57.1 million, which equates to an increase of $18.2 million or 46.8% over the prior year quarter. Rental income increased by $8.8 million or 33.33% due to the consolidation of assets formerly held in our joint venture with NYSTRS as well as higher rent spreads on leases.

Fee income from the unconsolidated joint ventures for the quarter was $1.3 million, a year-over-year decrease of $337,000 and that's due to a lower transaction fee income from the IPCC joint venture and the consolidation of NYSTRS joint venture assets. The decrease in one-time transaction fee income was partially offset by higher long-term management fee income from our joint ventures with both PGGM and IPCC.

Turning to expenses. Total expenses for the quarter were $47.7 million, an increase of $17 million or 55.4% over the first quarter of last year. Property operating expense, real estate tax expense and depreciation and amortization expense all increased primarily due to the consolidation of the NYSTRS portfolio and other acquisitions. Property operating expense was also impacted by higher snow removal costs, which are recoverable under the leases of in-place tenants.

G&A expense increased by $1.4 million year-over-year related to higher transaction pursuit cost and headcount. Importantly, our annualized G&A expense as a percent of total assets under management was only eight-tenth of a percent for the quarter and this was consistent with the prior quarter and the comparable period of 2013.

Interest expense for the quarter was approximately $9 million, an increase of $1 million over the prior year quarter. The increase was due primarily to the consolidation of the NYSTRS portfolio and partially offset by the elimination of interest expense upon repayment of secured debt.

For the three months ended March 31, 2014, we recorded a gain on sales of investment properties of $12.9 million related to the sale of Dominick's, Countryside and the River Square and Golf Road Plaza unanchored strip centers.

I want to note that we have early adopted the new discontinued operations Accounting Standard Update 2014-08. Early adoption of this standard means that operations from properties sold after December 31, 2013, will not be reclassified into discontinued operations, unless the sale represents a significant shift that has or will have a major effect on our operation and financial results. Operations from property sold before January 1, 2014, will continue to be included in discontinued operations.

Finally, equity and earnings of unconsolidated joint ventures increased by $454,000 for the quarter due to higher NOI from properties in the PGGM joint venture portfolio and that's partially offset by the consolidation of the NYSTRS joint venture assets.

Turning to guidance. We continue to expect recurring FFO per share to range from $0.93 to $0.97. Consolidated same-store net operating income to increase between 2% and 4% and consolidated same-store financial occupancy at yearend to range from 91% to 92%.

In summary, we continue to make strides to improve our balance sheet. Our newly expanded portfolio is generating strong revenues from positive rent spreads. And we continue to look for opportunities to grow and diversify our portfolio.

With that, we'll open the call up for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Paul Adornato of BMO Capital Markets.

Paul Adornato - BMO Capital Markets

I was wondering if you could talk a little bit about the two Roundy's stores that are not spoken for. What kind of co-tenancy clauses might kick into effect when those stores go dark?

Scott Carr

The two stores remaining actually have virtually no exposure to co-tenancy. The one store at Dunkirk Plaza, which has co-tenancy with both, Becker Furniture and Big Lots, as well as lot of national outlet tenants. We have minor exposure to Hallmark and Dollar Tree and it's less than a $100,000 annually. And at Riverdale Commons we have no co-tenancy.

Paul Adornato - BMO Capital Markets

And on the two locations that are spoken for by SuperValu, will there be any downtime and any co-tenancy there?

Scott Carr

No, we don't think the downtime would be long enough. And again co-tenancy, contractual co-tenancy in those particular centers is really de minimis. It really isn't something we give tied to a grocery anchor. So our contractual exposure is minimal.

Paul Adornato - BMO Capital Markets

And was wondering in Chicago, if you could provide us an update on the Safeway departure, just really wondering what's happening in the broader market. If you could tell us that how many stores you believe are still not spoken for in the market?

Scott Carr

From our best estimates, it appears to be about 25 to 30 stores are still not accounted for. Rough numbers have Mariano's taking 11 stores, Jewel took a total of 9 and Whole Foods took 8, balance went to a lot of our independent operators. Chicago is a very vibrant independent grocery network. And this was a prime opportunity for a number of these individuals to expand their store count.

And we really look at the remaining stores. In the next round, will they become grocery or non-grocery, some certainly have that potential. As we look within our portfolio, we started with five operating stores. We sold one to an independent operator. We have the three others that have been taken over, one by Caputo's, one by Richard's. So those are both established independent operators here in Chicago. And then the third was taken over by Mariano's.

The one that we have that has not been claimed by anyone is actually located in Schaumburg. And we're working with Safeway to pursue non-grocery. We feel this has more potential and we're in negotiation to try to leverage that. But again, in the interim we have the benefit of the Dominick's rent.

That particular lease goes through 2021. So we certainly have the comfort of income. And hopefully try to leverage that in a re-leasing effort as well as no co-tenancy exposure at that location. So the Dominick transition for us really has been a positive, where we look at Caputo's coming in at that particular center. Our in-line space has remained a 100% occupied and the tenants are excited about having the grand opening sign starting to go up.

Likewise, our store, where we have Richard's coming in, we've actually signed a new junior anchor tenant to that center, which we'll announce next quarter. And we're seeing a lot of renewed interest in that location. And then, with Mariano's we're looking at some major retenanting effort, because the interest they've inspired at that location.

So net-net, we see, when you replace a moderately performing anchor with a strong performing anchor, the impact on the center is exponential. So it's been a good transition for us. And we think that the Roundy's scenario turnout the same way, because of the nature of those two centers.

Operator

Our next question comes from Juan Sanabria of Bank of America Merrill Lynch.

Juan Sanabria - Bank of America Merrill Lynch

Just a quick question. You announced a new joint venture last quarter. Just wondering if you can give us an update on progress and sort of securing sites for future developments on the new MAB joint venture and how that is progressing?

Scott Carr

Our venture is with MAB Retail Partners and the intent is to pursue the development of groceryp-anchored centers primarily throughout the Southeast. We have been on the ground since we launch the venture on October. We've hired a dedicated development team as part of the structure of the joint venture.

We have number of sites we're looking at with four under contract or control right now. And we're pursuing entitlements in anchor tenants. So we are optimistic that we will at least get one of these projects closed in underway by the end of this year. That's really our objective there.

And then this activity is focused on the Southeast and then we still have our existing development joint venture here in the Midwest where we're building a Mariano's and PetSmart anchorage center. And now that the weather has finally broken, we're in full-bore construction there and looking to deliver space to those tenants at the end of the year. So that center will actually come on line first quarter 2015.

So we really view this as an opportunity again to try to add brand new, high-quality, best-of-class anchored shopping centers to our balance sheet at better than market pricing. And we're very encouraged with the activity we've seen particularly throughout Florida, Georgia and the Carolinas.

Juan Sanabria - Bank of America Merrill Lynch

And just one follow-up. With regards to your balance sheet goal of becoming an investment-grade overtime, could you give us a sense of the metrics of where you stand today relative to where you think you need to go to sort of take off all the boxes and over what timeframe that you expect to get there?

Brett Brown

We continue to make progress on that. The metrics, as I reported, are outside of where the rating agencies would look toward and we're just continuing to move along that spectrum to get in line with our investment-grade peers. And so I don't have a definitive timeframe for that, but we continue to make progress on that steadily as we really take out more of the secured debt as well grow the portfolio and diversify the portfolio.

Juan Sanabria - Bank of America Merrill Lynch

No, necessary like -- really not there like net debt to EBITDA target for yearend that you want to get to in your head or anything like that that we should be keeping in mind?

Brett Brown

No.

Operator

Our next question comes from Todd Thomas of KeyBanc Capital Markets.

Grant Keeney - KeyBanc Capital Markets

This is Grant Keeney on for Todd. Just wanted to touch on acquisitions. You guys have continued to be pretty active in the IPCC joint venture during quarter, but quiet on the PGGM. But you mentioned you expect to be active this year in your opening remarks. I think you're maybe just under $150 million, but can you remind us how much more capacity will be there, as last in that venture. And then you mentioned you're reviewing multiple assets, so I was just curious as to what type of assets are in your pipeline and what you are seeing in terms of pricing? And whether that's changed over the last several months?

Scott Carr

We have been pursuing assets for the PGGM venture and our remaining acquisition target there, you are correct, is just in the range of $150 million. And we would have the goal of trying to fill that out this year. We do have one asset in due diligence right now under contract, that if everything goes well, we'll be closing.

But the environment has remained or it become even more competitive. We are seeing great deal of competition on assets. We've seen compression in cap rates throughout a broad range of markets. And whole new set of investors coming in, especially driven by institutional investors buying direct, so that's been a new dynamic over the past nine to 12 months and pricing remains very competitive.

So to that end, we're out working all our relationships. We certainly see all the marketed opportunities. We pursue as many off-market opportunities as we can. And we'll be as aggressive as possible, but we're always going to be diligent and balanced in our approach. So we'll wait for the right deals to come along and we are optimistic that we can find these opportunities.

Grant Keeney - KeyBanc Capital Markets

I guess, just a follow-on that, you said you are being opportunistic and we understand there might be a sizeable portfolio of a handful of grocery-anchored shopping centers in the Southeast, most of which are Publix-anchored. So I was hoping, you could comment on your interest level in portfolio like this, given your expansion plans in the Southeast? And maybe just in general, your appetite for portfolio acquisitions?

Scott Carr

We would definitely have an appetite for portfolio acquisitions and we've been active in pursuing portfolio acquisitions. What we've seen is the pricing on those has gotten beyond where we're comfortable investing. So we are still actively looking at those.

We will be active in the bidding process. We're trying to enter off market portfolios. But again really the balance to a competitive acquisition market is our effort on the development joint ventures. So while they will take a little longer to get outside of the ground and stabilize, we'll be getting in at a better return hurdle that makes more sense for our long-term investment objectives.

Grant Keeney - KeyBanc Capital Markets

And then, just touching on the same-store portfolio. So I understand since your occupancy was 91.8%, which is I guess a 180 basis point increase, not 340 basis point, but nonetheless it's pretty solid and buck the trend. The seasonal decline here from first quarter, but I noticed your same-store occupancy guidance remains in the range of 91% to 92%. And Scott, I think, last quarter you mentioned there maybe some impact from redevelopment dispositions. I'm not sure if you mentioned in your opening remarks, but can you just give us some color on what to expect I guess at balance of the year, given the strong first quarter occupancy level?

Scott Carr

Right now, we're still projecting again at the yearend number. And again, based on dispositions and some potential space coming offline to target a yearend number, we're still within that guidance range.

Grant Keeney - KeyBanc Capital Markets

And I guess timing of dispositions and any update on when you expect the majority of dispositions to occur?

Scott Carr

To date, we've included what we've closed during the second quarter. We've had about $50 million in disposition. We have another probably $14 million to $18 million that we're pursuing over the balance of the year and that would round it out. Timing-wise, we'll probably see another closing within the second quarter and maybe one in the third.

Operator

Our next question comes from Tammi Fique of Wells Fargo.

Tammi Fique - Wells Fargo

Maybe just following up on the financial occupancy question. I guess with the revision it does help gear up a little bit, but still up a 180 basis points. It just seems like revenue growth would have been up more than 0.4%. Can you maybe just talk about what happened with same property rental rates year-over-year?

Scott Carr

It's really a lesser product of rental rates than it is as timing of income coming on. As we look at the income that's come on over the quarter, the first three months of the year, it was actually the month of March that had the largest increase in base rental revenue with tenants commencing rent payments.

And likewise that's how we see the balance of the year going. We see the same-store NOI projection of 2% to 4% still is our goal and it's achievable, based on what we see coming on line. But it will be waited to the later half of the year, as the tenants commence paying rents between the late second, third and fourth quarters.

Tammi Fique - Wells Fargo

But on a same-store basis, if you were to look at rental rates, they are going up versus last year?

Scott Carr

We don't breakout the rent spread on the same-store basis. That's something we would have to calculate and get back to you.

Tammi Fique - Wells Fargo

And then you have roughly 1.4% exposure to Office Depot. Do you have any thoughts or insight to risk of closure in those particular 11 leases?

Scott Carr

Interestingly enough, our leasing team was meeting with Office Depot, as the announcement came up. So we not only heard it in the press, but we heard it real time from Office Depot. And the 400 stores they've announced for closing, I think we're going to see the majority of them closing through lease expirations. So I don't think there is going to be a mass closing of underperforming stores, it will be more orderly.

And again, it's part of our strategy on an ongoing basis, where we're meeting with Office Depot and tenants alike about the future. And when we look at ours we have three that we've already identified that we'll be taking back at the first quarter of 2015 and we have active replacement prospects on all three. So it's something that we've been working and ahead of. We've already downsized two within the portfolio.

So as we head into 2015, we will have managed our exposure to eight locations. And those remaining eight have considerable lease term. But still remain opportunities for us to either work with Office Depot on a repositioning or downsize or perhaps do some kind of termination and retenanting. So we view this as, again, I think it will be a relatively orderly transition and it's really an opportunity for us, because these are well-placed boxes in some of our stronger centers.

Tammi Fique - Wells Fargo

And then, just maybe turning back to on the asset sale in Florida to Disney, can you maybe talk about the cap rate on that and what sort of triggered the timing of that sale?

Scott Carr

The Disney property was unique. It was a single-user office property leased 100% to Disney. We acquired back in 2002, because it was a great investment. It had a lease in place that had increasing rents, and we've bought it at 10 cap at that time. So it's performed very well for us.

The lease only has thee years remaining on it. So we looked at opportunities to try to trigger the option. So what we did is we took the property to market. The price we achieved was actually higher than the broker guidance. And when we presented it to Disney, they opted to exercise their option and buy it. So we had surety of closing at a price that was set by market and that traded at about a 9 cap.

Tammi Fique - Wells Fargo

And then maybe just as we think out further with regard to dispositions, just specifically what kind of cap rates are you seeing maybe on some of the other assets that you'd looking to sell like the unanchored or maybe the slower growth properties?

Scott Carr

The properties we've sold to date, the unanchored strips are garnering. We consider it to be very attractive cap rates. The Gulf Road Plaza traded for about an 8.5 cap and the Naperville, the River Square traded at a 7.1 cap. So we expected to be in that range from 7s to mid-8s. And again, it will depend on the quality of the assets as we go forward.

Tammi Fique - Wells Fargo

Now that you find attractive acquisition opportunities in the market, should we expect perhaps an acceleration of dispositions or would you look to fund that with different sources of capital?

Scott Carr

That's always an option. The disposition of assets is something that's part of our regular review of every asset from wholesale perspective and based on acquisition opportunities we see. But again, we really have been focusing on those assets that are non-core or where we really have maximized value or seen limited growth potential, so that we can redeploy that capital into higher quality assets.

If you look at the type of assets we've acquired over the past 18 to 24 months, there are larger centers of much more national tenancy and a better diversification of tenant base. And our objective now is to pair that with geographic diversification as we grow.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Zalatoris for any closing remarks.

Mark Zalatoris

Well, thank you, operator, and thank you all for listening to our call today. We look forward to talking with many of you at ICSC RECon convention later this month and at NAREIT's REITWeek Investor Forum in June. Have a good evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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